The Romanian workforce, although considered cheap, does bear the most taxes in the entire Central and Eastern Europe, despite the five percent cut in the social security contributions (CAS) operated this year.
The total contribution reaching 52% means Romania is operating a taxation system that can be considered aggressive if relating it to the other countries in the region. Ranking close behind is Slovakia with 50% contribution, while the other countries in the region have set the social security contribution to 38% in Bulgaria (the lowest of them all) and 40% in Hungary and Poland.
The wages on which the CAS is levied in Romania are among the lowest, with raises discouraged by the high taxes. Although Romania has the highest CAS level, collection is lagging far behind. The revenues the Romanian Exchequer had collected from CAS in 2001 accounted for 10.9% of GDP, while the countries ranking behind Romania in terms of CAS levels had attained 12%-14% of GDP.
Going beyond the CAS to the other major tax and duties categories - VAT, income tax, profit tax, Romania appears to have average taxes. There are some overtones here. Subsequently, Romania is the only country in the region except Bulgaria that does not apply low VAT, postponing such a measure for at least 2004. The most advanced countries in the area enforce VAT of up to 25% (Hungary) but they are compensated by lower quotas, 3%-5% for certain product and service categories.
This also goes for the income tax. It is true that certain countries such as Hungary or Poland levy a maximal 40% quota, while Slovenia levies 50%, but they all have functional fiscal deduction systems compensating for the too high taxes and boosting consumption and personal investments.
As for profit tax, it is kept at a medium level in Romania, compared with the 31% (maximum) in the Czech Republic and the 18% (minimum) in Hungary. Curbing taxation in Romania is a risky thing to do, because of the low revenue collection capacity of the fiscal administration.
The International Monetary Fund (IMF) agrees with a new social security contribution cut in Romania but ties it to an expanded taxation basis and an improvement in tax collection, as well as to the pension system reform. As far as the Fund is concerned, cutting other taxes and introducing low VAT quotas is out of the question.
The Government proposed a new social security contribution cut by another seven percentage points throughout 2004-2005.
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